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Income tax bracket threshold for zero tax in the US and regarding no income at all

Law Asked by Joseph Johnson on January 1, 2022

(1) I am trying to find out whether one has to file any income tax if they are an American citizen permanently living abroad but having literally no income?

(2) While trying to search about this on the internet, I wondered why is there no tax bracket with 0% or nil income tax (the UK doesn’t tax income upto £12,500 for example). This means that people earning below that threshold are exempt from paying tax. Is there no such Nil or 0% tax thing in the US? So many countries have this minimum threshold income where no filing of income tax is required. Even countries like India have such policy. But I can only see that in the US you have to pay 10% tax minimum no matter how less you earn.

I would really appreciate if you could help me regarding those 2 questions.

Thank you:)

2 Answers

  1. Under US law, you do not need to file a tax return if your income was under a threshold. For tax year 2019, this threshold is $12,200 for an individual under 65 years of age, which non-coincidentally was the standard deduction for that year.

  2. There is effectively a 0% tax bracket, due to the standard deduction. A deduction is "deducted" from your income to form your effective income, which is taxed. If you make less than 12,200, the standard deduction (which is available to everyone) makes your effective (i.e. taxable) income $0.

The reason it is set up this way, is that there are a whole host of "deductions" that can be applied to a tax bill, designed to encourage various behaviors, instead of the standard deduction. The is called "itemizing", can can lead to a total deduction that is greater than the standard deduction. So if you your actual income is $20,000 and you have $15000 in itemized deductions, you have an effective income of $5000, which is taxed at 10%. If you have an income of $45000, and $15000 in deductions, you have an effective income of $30000, of which the first $19750 is taxed at 10%, and the remain $10250 is taxed at 12%.

Answered by sharur on January 1, 2022

Q2: US tax brackets are based on your taxable income, which is computed by applying various adjustments and deductions to your "actual" gross income. In particular, most taxpayers are entitled to apply a standard deduction which is currently about $12,000 for a single taxpayer.

So if you are a single taxpayer with a gross income of, say, $10,000, then after taking the standard deduction you have a taxable income of $0 (it cannot go negative) and therefore you owe $0 in taxes. The overall effect is somewhat similar to having a 0% tax bracket.

Answered by Nate Eldredge on January 1, 2022

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